In what amounts to yet another chapter in the ongoing controversy surrounding mortgage giants Fannie Mae and Freddie Mac and foreclosures, California is petitioning the Federal Housing Finance Agency to halt foreclosure related to the two GSEs.

In a letter sent to the FHFA, the regulator in charge of Fannie Mae and Freddie Mac, California Attorney General Kamala Harris requested that all California foreclosure cases be halted by the agency so that the two GSEs could perform a “thorough, transparent analysis of whether principal reduction is in the best interests of struggling homeowners as well as taxpayers”.

According to the letter, roughly 500,000 California homeowners are either in the foreclosure process or are in danger of joining the foreclosure process at some point during 2012. California already has one of the highest foreclosure rates in the country, and that rate is only expected to increase throughout 2012, as it is nationally.

Harris’s concern is predicated on the controversy surrounding Fannie Mae and Freddie Mac’s alleged tendency to foreclose first and ask questions later, often spurning chances to engage in loan modifications or principal reductions. As a result, according to critics, many home foreclosures could’ve been avoided if the two GSEs were more open to engaging in loan modifications, which seems to be the preferred course of action of the Obama administration.

Right now, Fannie Mae is fine-tuning its plans to make its first foreclosure properties available for rental units through private investors at some point this year, probably before the end of summer. Two locations in California – Los Angeles and Riverside – will serve as test beds for the foreclosure-to-rental rollout along with six other locations across the country. Roughly 23% of the foreclosures currently being rented out will be sold at the California locations.

It is unclear whether or not the FHFA’s decision could impact this separate plan. The FHFA so far has not responded, and it is unlikely that they will completely halt the foreclosure process. It is also unlikely that a halt in the process would impact the foreclosure rental program because the potential properties up for sale soon are already foreclosure properties.

Regardless of the response, Harris evidently is intent on pushing the issue of California foreclosures now and into the future, even after signing the National Mortgage Settlement Agreement in early February. Time will tell if this latest initiative will work.

There’s good news and bad news for the nation’s mortgage delinquency rate.

The good news? The rate actually fell, dropping by 2.2% from December, 2011 to 7.97% and falling by 10.5% from January, 2011.

The bad news? The number of home mortgages that are late on payments – including those in foreclosure – is still massive, at 6.08 million loans.

Of the mortgage delinquency tally, a significant portion – just over 33% – includes home foreclosures. Plus, the foreclosure rate actually increased by 1.1% monthly from December, even if it did drop slightly by 0.1% from January of last year.

Approximately 3.99 million of these delinquent loans represent accounts that are 30 days or more past due but haven’t yet received an official foreclosure filing, suggesting that banks are still struggling with existing foreclosure cases that are lingering from 2009 and 2010 – predominantly as a result of the foreclosure fraud scandals that first broke out in the fall of 2010. Roughly 40% of this number includes home loans that are more than 90 days delinquent.

Of the states, Florida once again tops the list when it comes to delinquent home loans and foreclosure properties. Mississippi moved up to replace Nevada, which fell slightly to third. New Jersey and Illinois rounded out the top five. On the opposite end of the spectrum, Montana topped the list of states with the fewest non-current loans, followed by Alaska, Wyoming, South Dakota, and North Dakota.

The results also help further correlate delinquent home loans and foreclosures with unemployment. The five states listed above with the lowest foreclosure rates have some of the lowest unemployment rates in the country – especially North Dakota, which boasts the lowest unemployment rate (3.3%) in the nation.

Inversely, all five of the states with the highest foreclosure rates have above-average unemployment rates. Nevada leads the country with a staggering 12.6% unemployment rate.

One must be careful to note that the mortgage delinquency rate – 7.97% – does not include properties that are already in the foreclosure process. It is a measurement of all home loans in the country that have at least one payment past due, not counting foreclosure properties. As a result, the real mortgage delinquency rate could be interpreted to be significantly higher than what it appears to be.

Still, any decline in the rate is good news for the Obama administration, trying to find some way to prop up an ailing housing market and spur significant recovery.

With the new foreclosure settlement, critics are suggesting that 2012 could easily exceed 2011’s foreclosure numbers and even compete with 2010 for the worst year on record for the foreclosure crisis.

According to the reports, foreclosures increased by 8% from last December to January 2012. This figure is 15% below the totals for January, 2011, but that year-over-year gap has shrunk. Now, experts are expecting the bulk of one million delayed foreclosures from 2011 to hit in 2012, significantly adding to this year’s totals.

Sifting through data and trying to extrapolate can result in a messy analysis of current situations, but what is clear is that banks are beginning to step up their foreclosure processes and try to resume clearing out their backlogs of inventory, which are dangerously close to overflowing for many institutions.

Many investors, in fact, are banking on the premise that more foreclosures are coming – which is why private equity firms are preparing to enter the market and purchase foreclosure properties in bulk, either from the federal government or from lenders who will attempt to unload their surplus inventory at some point this year.

Bulk purchases of foreclosures will not change the foreclosure rate but will help shore up housing prices at a time in which housing prices are anything but stable. Investors then would be in a good position to realize profits in the short term while rehabbing a significant portion of properties for greater long-term profit.

Indeed, it could be as early as 2013 when prices begin to rise enough to make a significant portion of purchased foreclosure listings profitable. The year after – 2014 – looks even more promising, as that is the target date many analysts have set for a turnaround in the market.

Until then, though, investors and society alike must wade through the potential negative effects of an increased foreclosure rate this year – a year that could be one for the record books.

The Federal Reserve Board, in conjunction with the Office of the Comptroller of the Currency, has formally extended the deadline for foreclosure review by 90 days. The previous deadline was April 30^th of this year; the new deadline is now July 31^st.

The process was established last April after foreclosure fraud, deceptive practices, and robo-signing scandals broke out en masse against the lending industry. If a homeowner had his or her mortgage and foreclosure serviced by one of 14 mortgage servicers, he or she is qualified for a foreclosure review (provided the home foreclosure was a primary residence).

Reviews will be conducted by independent consultants hired by the mortgage servicers. If harm is found in a homeowner’s case, that homeowner may be eligible for compensation from a process created to deliver restitution to foreclosure fraud victims. (The $26 billion settlement signed last week is a separate process.)

Almost 4 million homeowners were sent letters from the OCC, among the group identified by the servicers themselves as being possible victims. In order to qualify, homeowners have to return the official “Request for Review” forms sent by the deadline. Homeowners can qualify if their case is found to have suffered financial injury, a term interpreted to mean a wide variety of situations and circumstances, including:

- Participating in a loan modification agreement but the foreclosure sale occurred

- Having your home foreclosed even though you were a military member

- Being in bankruptcy protection but having your home foreclosed anyway

- Having a higher mortgage balance than what you actually owed

- Being charged more payments or fees than what should have been assessed

The last two actions are particularly important for foreclosure victims because they were some of the most widespread conditions during those two years.

No one knows exactly how many homeowners have taken advantage of the review process so far – or how many more will take advantage of the deadline extension – but suffice to say, a significant amount of homeowners were impacted by the foreclosure fraud scandals that rocked the industry.

The new foreclosure settlement signed by the states last week will undoubtedly contribute to the restitution provided by millions of foreclosure victims.

Those in the banking industry and in the federal government – as well as a good chunk of state attorneys general who participated in the negotiations and therefore have a lot invested professionally in the success of the deal – would say that the consumer won. After all, the banks have to pay at least $26 billion, including checks written directly to thousands of Americans and principal reductions for many homeowners who are underwater.

Those who have criticized the process since its inception, and have argued strongly against any kind of settlement with banks that are more than likely guilty of widespread foreclosure fraud and deception, say the deal isn’t a bargain at all for homeowners and instead is a win for big banks and no one else.

In fact, some have even gone as far as to say the arrangement rids the banks of toxic inventory in the form of bad mortgages by using $17 billion in principal reduction credits­ – not cash. Furthermore, the big five – Wells Fargo, Bank of America, Citibank, JPMorgan Chase, and Ally Financial – won’t really be out much cash at all, it turns out.

The $26 billion amount isn’t a cash amount; only roughly $5 billion will be in cash payments in one form of the other. In addition to the $17 billion above, roughly $3 billion or so will be for mortgage loan refinancing – which still keeps the business generated by the mortgage with the bank. So, if the homeowner can stop foreclosure the banks win; if the homeowner still succumbs to the foreclosure process, the banks win because they can reclaim the property.

Throw in no real definite mechanism for reworking the foreclosure process – perhaps the key, central incentive behind any legal proceeding against the home finance industry – and one might see the makings of a great deal for the banks.

Plus, there are still millions of foreclosure listings on the market that haven’t gone away and are still dragging down market values and hurting existing supply. This deal has no measurable and enforceable mechanism to deal with these foreclosures, or most of the 11 million Americans underwater.

Compared to that, and the rampant foreclosure fraud and deception that occurred, $26 billion seems like a rotten deal for the American public.

Mortgage rates have never been this low in recorded history (since mortgage rates have been tracked), a testament to the impact the Federal Reserve is having on borrowing and lending in this country. The last few months have been a far cry from the days of 6-8% interest rates in the hey-day of American real estate from 2001 to 2006, before the housing bubble popped so spectacularly.

Now, the only question is whether or not these falling rates will spur even more home buying from investors and homeowners looking to jump into a hot buyer’s market.

Last week, the average rate for a 30-year fixed-rate mortgage loan across the country stood at 3.98%, which was up from previous lows established earlier this year. The weekly drop was a 3.87% decrease, one of the largest weekly drops of the last couple of months. A smaller but still significant margin of decrease was found in 15-year fixed-rate mortgage loans that now stand at 3.14% from 3.24%.

Amid falling home prices – the S&P/Case-Shiller index of home prices in 20 U.S. metro areas fell by 3.7% annually as of November 2011 – and increased numbers of foreclosure listings on the market, low interest rates are very attractive to potential buyers because they offer cheap financing. So far, though, impact of low mortgage rates on improving the real estate market is less than expected.

The main obstacle appears to be a lack of sufficient demand caused by consumers who are either hesitant to buy without reassurance that prices will stabilize in the near future or unable to find financing from lenders who are still dealing with tight credit, toxic assets, and potential lawsuits related to foreclosure fraud accusations.

Add in nearly 11 million American homeowners who owe more on their mortgages than their homes are worth at current price levels, and one can see the difficulty inherent in the market today.

President Obama’s administration is working on helping investors purchase large blocks of government foreclosures and helping homeowners refinance their homes at today’s low rates. As a result, low interest rates could have a positive impact in the near future.

According to one analyst – Anish Lohokare from BNP Paribas – “This HAMP change should have a muted impact at best”, primarily due to a failure to really address one key player left out of the change: the mortgage loan servicer.

Right now, modifications to HAMP (now called HAMP 2.0 by many) call for a 200% increase in the amount of financial incentives given to lenders who agree to reduce the principal of outstanding mortgages, thus helping stricken homeowners reduce their overall debt load and monthly mortgage payments. This in theory could help many avoid foreclosure by giving them more affordable mortgage payments – but the agreement would also cut into the profit margin for mortgage loan servicers, who typically receive a percentage of the principal as payment.

As a result, many loan servicers refuse to actively participate in the program, and currently there are few overpowering incentives to do so from the federal government (who has not yet taken the controversial step of mandating participation for lenders operating in the U.S.)

Principal reductions are widely thought to be a key component of any successful plan to reduce the number of foreclosure properties that hit the markets each year. By writing down the principal, the bank is not only reducing the monthly payment – thereby giving consumers more money to spend or save each month – but is also lowering the total cost of the home, once interest and capitalization is taken into account.

Not enough lenders are participating, though, and as a result, instead of four million Americans impacted positively by HAMP, only roughly 900,000 have qualified- and less than half have achieved a permanent modification.

The next year will be critical in determining if HAMP 2.0 succeeds and helps to reduce the national foreclosure rate – or if it fails to adequately address the foreclosure crisis on a large enough scale to make a noticeable difference, unlike its previous iteration. The program has only been extended through to 2013, which is not a lot of time to make a noticeable impact.

At some point, in order to have the full impact its designers want it to have, HAMP 2.0 will require some tweaks and adjustments to obtain full participation from all players involved – not just homeowners.

The settlement, in the works since the scandals first broke in the fall of 2010, will call for $25 billion from lenders – including Bank of America, JPMorgan Chase, Wells Fargo, Ally Financial, and Citibank – to go toward reducing the principal for nearly 1 million mortgages, paying 750,000 homeowners $1,800 a piece, and helping homeowners refinance at 5.25% for their current loans (many of which have interest rates much higher than current amounts).

There is also the possibility of mortgage processing reform to come with the package, although nothing definite is set in stone.

The settlement has been a long time in the making, but already several key players have backed away – including California’s Attorney General Kamala Harris, who unequivocally stated that her state will have no part of a deal that is “inadequate for California”. Other attorneys general across the country have issued statements along those lines in the past year, including threats of investigations into the banks and their foreclosure practices.

Most of the criticism toward the settlement revolves around the presence of some degree of civil immunity for the banks from the states – a measure that has not only served as a flashpoint for criticism against the major banks and settlement process, but also single-handedly stalled negotiations for months.

Nothing, though, provides criminal liability immunity, which could come into play with several major probes and investigations planned against certain lenders in the near future.

With nearly 11 million homeowners underwater on their homes, and hundreds of thousands of foreclosure listings on the market, a foreclosure settlement is needed to regain some sense of normalcy to a domestic real estate market weighed down by low prices and an abundance of supply. While it is still doubtful whether or not this settlement will have the impact the Obama administration desires, a solution is more likely to happen with the banks on board than in the courtrooms at this point.

There is no word yet on how many states, exactly, will sign the settlement; at least a handful, including California, New York, Delaware, and Massachusetts, have either balked or refused to sign. Some in the industry doubt the settlement can succeed even with widespread support if key states like California and New York don’t join.

For now, though, the settlement appears to be heading in the right track.

There are numerous reasons to avoid foreclosure prevention companies with scams and fees coming in at the top of the list.

Steep Fees for Sketchy Service

Many people fail to understand that the most legitimate foreclosure assistance is completely free; therefore, if someone is charging you and promising to help you keep your home from undergoing foreclosure then you should immediately be skeptical. Many foreclosure prevention companies charge ridiculously high fees, money that could be used to actually pay on your home and help reduce your chances of losing your home. Plus, most of the services offered by these companies (like foreclosure counseling) can be obtained for free.

Before giving anybody money to assist you with foreclosure, it is highly recommended that you utilize foreclosure resources and information online. In the end, if you decide to go with a foreclosure prevention company despite the risks then make sure to thoroughly research the company both online and with the Better Business Bureau.

The Risk of Scam

Along with paying a lot for services that you can normally receive for free, many foreclosure prevention companies have turned out to be scams. Imagine facing the possibility of losing your home and paying hundreds to thousands of dollars to a foreclosure prevention company that claims it will protect you from foreclosure. A few months later you are not only without your home but you also are out the money you paid the company for the services you never received.

Anytime there is a severe need that is tied to something emotional (such as losing your family’s home) there are scammers that are ready to take advantage of the situation. Unfortunately, these foreclosure prevention companies are simply trying to earn as much money as possible without much concern for your family. As a result it is pertinent that you are aware of the high possibility of being scammed when seeking a foreclosure prevention company.

In the end, facing foreclosure is a very serious process that often leads to uncertainty and fear. Do not put yourself in a worse financial situation and face the possibility of being scammed by relying on a foreclosure prevention company. Instead, find free resources online.

Those watching the domestic real estate markets for signs of any relief in the foreclosure market may have the beginnings of good news from the West Coast. According to recent reports, foreclosure starts – initial filings from lenders to jumpstart the foreclosure process against delinquent homeowners – declined in four out of five states being tracked. These four included Arizona, California, Nevada, and Washington. Oregon was the only state that reported an increase in foreclosure starts.

Additionally, foreclosure sales increased in California and Washington while dropping in the other three states. Combined, these reports indicate extensive decreases in the average foreclosure timelines in several key states in the region. California in particular experienced a dramatic 16.9% drop in its average foreclosure processing time, a combination of fewer starts and more sales. Nevada also reported a noticeable decrease in its foreclosure processing timeline.

Of course, investors and homebuyers who want to see the beginnings of a real estate market stabilization and reversal should view these numbers with caution. After all, Nevada had a 14% drop in foreclosures for the month of December, 2011 predominantly due to a new law that adds more paperwork to the foreclosure process – already stretched out to an average of 331 days. This effectively means that foreclosures are harder now to process in Nevada, which will skew the overall foreclosure rate.

It is easy to view these figures and see improvement, and indeed, some of the reduction in foreclosure starts may be systemic in nature. But, it is also likely that any reduction is a product of changes or modifications to the foreclosure process itself, which doesn’t speak of any major improvement in the economy or real estate market as a whole.

Which is closer to the truth – real improvement in the market, or skewed figures that only look positive? The truth is somewhere in the middle; after all, fewer foreclosure starts are hard to misinterpret, and that is a clear-enough sign that lenders are, at the very least, slowing down the rate at which they send new foreclosures through the pipeline.

There will have to be some underlying improvement in the system and economy before it can be said with confidence that fewer foreclosures are actually occurring – and that the decrease is not due to a skewed perspective.